Facebook Chart Continuation And Reversal Trading Patterns

Our previous two facebook stock and options combination trading videos discussed chart price patterns for continuation and reversal. The videos ended with a strategy question to think about before it was discussed, here are the 2 questions:

But with the amount of consolidation after the double top – I will be looking for some breakout of the consolidation lows, followed by a retrace with mex continuing to fall after the cross

Something that starts to show some momentum build – trading out of consolidation is always very difficult, especially when looking for price patterns

Since Facebook stock will likely still be long at this point, I want to buy a put and sell a call

But a call has already been sold, so that leg has already been done

However, another call closer to the money could also be sold, in order to give a more sensitive options synthetic short

This goes along with previous discussions about options sold for income –vs- options sold for trading

The 50.5 call would be sold for income, which is covered by the long stock and the continuation scenario for covering any additional shorts

The call that would be sold for trading would be at the 49.5 or 49 strike, to make a synthetic sell combination with the put buy

If this sell scenario trades is done, it needs to be managed just like a short stock trade, since that is essentially what it will be the equivalent to

Let’s first look at the 60 minute chart:

The red dot synchs with the 5 minute red dot – the price shift-reject continuation sell with the gap

I took the short instead of holding with the options trades

This was actually the bar before the initial reverse, but it was at a time that I didn’t want to be long facebook

So I took the short as a day trade, with the scenario for going back long to protect the options if there wasn’t any price movement down

NOTE: Look at the mex and momentum build as price went down to support

Now we will look at the 5 minute chart with the confirmed support reject question – but further to the right after a pmd low-support failure breakout.

I showed the chart in this way, because I want to be sure it was discussed as if it was real time –vs- someone automatically saying there wasn’t support confirmation, because it kept going down instead of reversing

That is definitely not the way to study charts

I have taken the blue dot trade many times after the support pmd low-mex cross combination – when the trade is against open shorts

But I have a problem with calling this a confirmed support reject

Especially with the way the 60 minute chart has reversed and momentum is building, which is why we looked at that first

I also have the problem with those consecutive bars –vs- the yellow line-blue dot scenario drawing

Where there would have been a retrace followed by a higher low retest

That price action wouldn’t have been on consecutive bars and there would have been a crown pattern

On the other hand – the open trade is a call options short from the previous day – with this stock short and options synthetic short combination

I mentioned in the other video that I didn’t want to hold that 49.5 call short in the synthetic if the trade didn’t work

What I really wanted to do is get that short call spread off to hold it – and that is especially the case with also having the 50.5 call shorts

Additionally, if this is a confirmed support reject reverse pattern, it would be the entry timing for turning the long put into a ratio put short

My answer – this is not quite the confirmed reject pattern we want, but it is very close AND with chart patterns being a construction of bars that is sometimes the way it works

So the trading decision becomes one of strategies and options trading math –vs- the entry timing pattern

And what is the worst case scenario

You do the ratio option shorts too soon and give up some potential credit to have the protection

The chart pattern becomes a pmd failure-support price failure combination and a facebook stock short addon could be done

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